Fundamental Of Economic Analysis

Economics is best described as

• The study of how scarce material wants are allocated between unlimited resources.

• the study of how scarce labor can be replaced by unlimited capital

• the study of how decisions makers choose the best way to satisfy their unlimited material wants with a scarce supply of resources

• the study of how unlimited material wants can best be satisfied by allocating limitless amounts of productive resources

• the study of how capitalism is superior to any other economic system

A student decides that, having already spent three hours studying for an exam, she should spend one more hour studying for the same exam. Which of the following is most likely true?

• the marginal benefit of the fourth hours is certainly less than the marginal cost of the fourth hour

• the marginal benefit of the fourth hour is at least as great as the marginal cost of the fourth hour

• without knowing the student's opportunity cost of studying, we have no way of knowing whether or not her marginal benefits outweigh her marginal costs

• the marginal cost of the third hour is likely greater than the marginal cost of the fourth hour

• the marginal benefit of the third hours was less than the marginal cost of the third hour

The island nation of Beckham uses economic resources to produce tea and crumpets. Use the following production possibilities frontier for following questions 3 and 4.

Economic growth is best presented by a movement from

• A to B

• B to C

• C to D

• D to E

• E to A

The shape of this PPF tells us that

• economic resources are perfectly substitutable from production of tea to production of crumpets

• citizens prefer that an equal amount of tea and crumpets be produced

• the opportunity cost of producing crumpets rises as more crumpets are producec

• the opportunity cost of producing crumpets is constant along the curve

• the opportunity cost of producing tea falls as you produce more tea

Ray and Dorothy both can cook and can both pull weeds in the garden on a Saturday afternoon. For every hour of cooking, Ran can pull 50 weeds and Dorothy can pull 100 weeds. Based on this information, how should they allocate their time?

• Ray pulls weeds, since he has absolute advantage in cooking

• Dorothy pulls weeds, since she has absolute advantage in cooking

• Dorothy cooks, since she has comparative advantage in cooking

• Ray cooks, since he has comparative advantage in cooking

• Dorothy pulls weeds, since she has comparative advantage in cooking